Thursday, October 09, 2008

Effects of the financial crisis on micro finance

Center for Global Development has several articles on the possible effects of the financial crisis on developing countries which I am just beginning to catch up.
An encouraging one by David Roodman says that the effects on micro finance may be minor:
"If the worst happens, all bets are off; otherwise I expect the "macrofinance" convulsions will have minimal repercussions for microfinance. In Indonesia during its crisis in 1997, while large companies and rich people defaulted left and right, the 2.6 million microcredit borrowers of the Bank Rakyat Indonesia hardly skipped a beat. And few at this point are predicting that the U.S. seize-up will trigger a recurrence of such severe economic trauma for developing countries. This time around, many developing countries have a lot of money in the bank, in the form foreign currency reserves.
Meanwhile, most foreign investment in microcredit still comes from people and institutions motivated by charity and already primed to accept great risk -- government aid agencies, the Gates Foundation, wealthy individuals, the $100 million Tufts University fund endowed by eBay founder Pierre Omidyar. I doubt they will suddenly get cold feet. That said, rising skittishness among conventional investors might delay a shift some had foreseen toward commercialization in microfinance."
Mead Over thinks that foreign aid may contract but AIDS Treatment Jobs are a Safe Bet ;
"The U.S. government and other donors are likely to respond to this reality by preserving AIDS treatment funding while cutting other parts of the assistance budget. Other donors will do the same. The result will be that while the number of patients receiving AIDS treatment stalls at close to current levels, funding for HIV prevention and for other parts of the health sector will fall by more than 10% and AIDS treatment expenditure will become an even larger portion of the total assistance budget in 2012 than it is today.

Just as financiers are diverting their resources to U.S. Treasury bills as a "safe haven" in this time of financial uncertainty, those working in HIV prevention or other non-AIDS treatment jobs dependent on foreign assistance may want to think about switching into AIDS treatment jobs as a labor market "safe haven."

Chandan Sapotka consistently updates development news in his blog. Here is a fairly recent post on The impact of financial meltdown in the West on the developing nations .

3 comments:

Unknown said...

I read your post with great interest. We believe that along with charity dollars for microfinance, socially responsible investment is also required.

The microfinance industry needs to raise about $225B to get all the 1B folks who could use a microloan. That's more than charity or government aid can handle and socially responsible investments is just about the only lever big enough to provide that capital needed to address the problem. MicroPlace launched about 9 months ago and has been successfully raising capital ever since. We offer returns from 1-3%.

gaddeswarup said...

The general interest rate with many big micro loan organizations seems to be around 30% per annum and with some NGOs from 15%. I have seen some where the interest rate is as low as 6%. I am sure there is a place fo all and most will be useful.

Unknown said...

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